Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 3: I'm Joe Wassenthal and I'm Tracy Alloway.
Speaker 2: Tracy, I think at least temporarily, some of the trade
Speaker 2: related headlines are quieting down, and so it's sort of
Speaker 2: time perhaps to understand. I don't want to say new normal.
Speaker 2: I just don't. That's like jinxing it a little bit,
Speaker 2: but like what the new environment looks like for some
Speaker 2: of the industries that have been whipsawed and affected over
Speaker 2: recent weeks and months.
Speaker 3: Yeah, ninety days, for investors, executives and podcasters to kind
Speaker 3: of catch their breath and consider the new environment, That's
Speaker 3: how I would describe it, and then it will probably
Speaker 3: all change again.
Speaker 2: It'll chain We're never going to run out of fresh
Speaker 2: material and fresh stories to talk about.
Speaker 4: You know.
Speaker 2: There's always this thing. People are always surprised that there
Speaker 2: is this phenomenon which seems to occur in markets in
Speaker 2: which Republican presidents tend to not be great environments for
Speaker 2: the oil industry. Like people think, oh, yeah, here we're
Speaker 2: gonna have this pro oil president come in, but pro oiled.
Speaker 2: I don't know what that means.
Speaker 4: But if it means.
Speaker 2: More pro drilling, pro liberalization of energy regulations, then often
Speaker 2: that means lower prices and less profits, and then you know,
Speaker 2: you get an environment where you get a Democratic president
Speaker 2: who wants to constrict expansion, focus more on alternatives, and
Speaker 2: then profits go up. Anyway, the pattern seems to be
Speaker 2: repeating now, and oil prices have done pretty badly since
Speaker 2: the start of the year.
Speaker 3: Yeah, so this is something we've been watching. We've been
Speaker 3: writing about it in the old Lots newsletter. There was
Speaker 3: that great report out from the Dallas Fed their regular
Speaker 3: energy survey, and it had a bunch of quotes from
Speaker 3: anonymous oil officials that were really kind of extreme in
Speaker 3: various ways, and I think one of them kind of
Speaker 3: nailed the theme, which is that you can't really have
Speaker 3: fifty dollars per barrel oil and US energy dominance. It's
Speaker 3: like it's incompatible in various ways. So I think we
Speaker 3: should talk about that tension.
Speaker 2: We should absolutely talk about the tension. In addition to
Speaker 2: the supply, and we know that OPEC is pumping more,
Speaker 2: they are all the input costs going up, particularly from
Speaker 2: tariff affected companies in the US. What does it steal tubular.
Speaker 3: Tubular components, Christmas trees. Those are the little collections of
Speaker 3: valves and spools.
Speaker 2: Yes, so we're going to get into all that. This
Speaker 2: double whammy, so to speak. We have seen a bit
Speaker 2: of a rebound as we're talking about this. On April thirteenth,
Speaker 2: twenty twenty five, at ten oh seven am Eastern time,
Speaker 2: the price of a generic barrel of West Texas Intermediate
Speaker 2: sixty two dollars and ninety six cents. I don't know
Speaker 2: how profitable it is at that level, but we have
Speaker 2: the perfect guest, someone we spoke to a few years
Speaker 2: ago when the industry was under very different conditions, but
Speaker 2: someone who has a very sort of granular understanding of
Speaker 2: the industry. We're going to be speaking with Peter Churtsak,
Speaker 2: and he's currently the founder and president of Studio dot Energy.
Speaker 2: Previously as a managing director at art Financial, which did
Speaker 2: investing in the oil industry. So an expert in the space,
Speaker 2: has written books about the energy industry, energy transition periods
Speaker 2: and so forth. So, Peter, thank you so much for
Speaker 2: coming back on odd lots. Well, I'm delighted to be back.
Speaker 4: Thank you.
Speaker 2: Sixty two dollars and ninety five cents. Now, can the
Speaker 2: industry make money at these levels? Who's making money at
Speaker 2: these levels?
Speaker 4: Well, the industry is composed of many, many players that
Speaker 4: have many different geographic land holdings and therefore many different
Speaker 4: extraction methodologies and different grades of oil. So, you know,
Speaker 4: sixty two ninety six, if we think of it as
Speaker 4: an average price, is sort of okay. It's marginally profitable
Speaker 4: for a large part of the industry, but there's no
Speaker 4: questions that higher cost producers start falling off the map.
Speaker 4: And what you also see is things like stripper wells,
Speaker 4: wells that are very low productivity start to get shut
Speaker 4: in at these levels. And then there's the boardroom discussion about, well,
Speaker 4: what is the longevity of these prices? You know, the
Speaker 4: sixty two ninety six is and actually it was only
Speaker 4: about a week or two ago. It was in the
Speaker 4: high fifties. Yeah, you know, it's it's you sort of
Speaker 4: look at that in the boardroom and you just say, okay,
Speaker 4: is this going to last a quarter or is it
Speaker 4: going to last a year? And you'd probably say, you
Speaker 4: know what, I'm going to wait a quarter before I
Speaker 4: start making any major decisions on my budgeting.
Speaker 3: What's the funding environment like right now, because I remember
Speaker 3: if you look back at the shale oil boom in
Speaker 3: the sort of twenty tens, this was the big driving force, right,
Speaker 3: like everyone I wanted to invest in oil, and so
Speaker 3: we had this big boom and then we had oversupply
Speaker 3: and prices crashed. And now all the energy companies say
Speaker 3: they want to be really disciplined when it comes to
Speaker 3: capital spending. They want to return more money to shareholders.
Speaker 3: I don't know our shareholders interested in that particular proposition.
Speaker 3: And is funding still like a little bit difficult to get.
Speaker 4: Yeah, So let's talk about that because it's really important.
Speaker 4: You know, the equity funding which was so much a
Speaker 4: part of the shale revolution. You know, it started really
Speaker 4: in the Bocking around two thousand and nine, moved into
Speaker 4: the Permian around twenty eleven, and more broadly, and there
Speaker 4: was a lot of equity financings. That sort of money
Speaker 4: just came in at low cost. The capital things really
Speaker 4: started to change, as you pointed out Tracy in twenty
Speaker 4: fifteen sixteen, with the price wars, the drop and the
Speaker 4: price per barrel as the Saudis tried it to take
Speaker 4: their market share back, but there was another moment that
Speaker 4: was really important. That was around circa twenty seventeen eighteen,
Speaker 4: and that was when the whole end of oil narratives
Speaker 4: started to occur, right, that was and if you wind
Speaker 4: back to Elon Musk, the models was coming out and
Speaker 4: starting toning traction, lots of buzz about electric vehicles, and
Speaker 4: it was as if the end of oil was nigh
Speaker 4: within ten years. And so investors sort of the combination
Speaker 4: of hey, you guys aren't making money in the oil
Speaker 4: and gas industry. The prices are low, and by the way,
Speaker 4: it's a sunset industry. Therefore, just give us your cash
Speaker 4: flow or a significant portion of cash flow. We'll put
Speaker 4: the money elsewhere, right, And that was the sentiment. And
Speaker 4: that sentiment, you know, recently started to come back post
Speaker 4: invasion of Ukraine and the geopolitical elements sort of coming
Speaker 4: back and the price of oil rising above seventy dollars.
Speaker 4: It made it okay, well let's have another look. And
Speaker 4: then the sort of the demise of the whole ESG
Speaker 4: type narrative. But you know, this latest oil price d
Speaker 4: office sort of taken the resurgence off what do you
Speaker 4: call it? The sentiment has sort of turned a little
Speaker 4: I'm gonna just watch this. I've seen this movie before.
Speaker 2: What does it take Like oil isn't going to go
Speaker 2: away in ten years obviously, but there was a unique
Speaker 2: set of conditions in the twenty tens. They're also the
Speaker 2: technological gains. Do is the cheap capital like has that
Speaker 2: gone forever? Or is the industry so cyclical and so
Speaker 2: boom and bust that it's plausible that at some point
Speaker 2: we see another crazy drilling war, Like it feels like
Speaker 2: maybe I'm naive to think that that can't be recovered
Speaker 2: because people in the oil industry they're a little bit crazy,
Speaker 2: and you can never count out the possibility that they
Speaker 2: all go gung ho for expansion again at some point
Speaker 2: in the future.
Speaker 4: Well they it's a great point because of this that
Speaker 4: it's sort of like, Okay, we've seen this movie before. Yeah,
Speaker 4: if you recall, like it just only been in the
Speaker 4: last couple of weeks. At Opek plus is basically which
Speaker 4: is it released Saudi Arabia basically saying Okay, we're going
Speaker 4: to open up the taps another four hundred and eleven
Speaker 4: thousand barrels per day on top of the six hundred
Speaker 4: or so so at a time when the economy is weak,
Speaker 4: and you sort of question the motivations. Okay, are these
Speaker 4: guys trying to take back the market share that they
Speaker 4: feel that they're lost. We saw that movie back in
Speaker 4: twenty fifteen. But to be able to go gung hosts say, Joe,
Speaker 4: you need capital. You need to be able to replicate
Speaker 4: the low cost of capital era of the twenty tens,
Speaker 4: which was coupled with low inflation, low interest rates. We
Speaker 4: don't have that. We don't have that circumstance right now.
Speaker 4: So the planets are not aligned for a gun co drilling.
Speaker 4: And I think that the oil and gas executives are
Speaker 4: much more savvy today that they sit in the boardroom
Speaker 4: table and say, Okay, I'm going to watch this. I've
Speaker 4: seen this before. And by the way, in the world
Speaker 4: of corporate governance, it's shareholders who really oversee the board,
Speaker 4: and the board overseas the management. So ultimately the shareholders
Speaker 4: are the ones that are deciding whether or not the
Speaker 4: industry's going to go gung hole. And right now the
Speaker 4: sentiment is now.
Speaker 3: You know, Joe made the point earlier in the intro
Speaker 3: that one of the strange realities that we all live with.
Speaker 3: Seems to be that the oil industry leans Republican. I
Speaker 3: think that's fair to say. Meanwhile, the price of oil
Speaker 3: tends to do better under democratic administrations, And in fact,
Speaker 3: our Bloomberg colleagues had a really good piece out I
Speaker 3: think just this week. It was called Trump's thirst for
Speaker 3: Cheap Oil irks and industry he loves to praise, and
Speaker 3: in it they quote a guy who owns a sort
Speaker 3: of oil components store in Texas, and he has this
Speaker 3: really funny quote where he says, we make our money
Speaker 3: during democratic administrations. I killed it during Clinton, Obama and Biden.
Speaker 3: I said that at the country club, and I thought
Speaker 3: somebody was going to kill me with a butter knife,
Speaker 3: which is hilarious. But like, what is the attraction? What
Speaker 3: is the Republican pitch to the energy industry which seems
Speaker 3: to resonate potentially in the face of reality.
Speaker 4: Yeah, it's great. I mean from a statistical perspective, if
Speaker 4: you want to get into the details, in correlation does
Speaker 4: not imply causality. In other words, I'm a little suspicious
Speaker 4: that democratic administrations are the cause of greater prosperity for
Speaker 4: the oil and gas industry because the overlay of the
Speaker 4: technological revolution of horizontal drilling, fracking and all that stuff
Speaker 4: has nothing to do with political administrations, nor does it
Speaker 4: necessarily have to do with other major factors, but it
Speaker 4: does speak crazy to the tensions you're talking about. I
Speaker 4: read that article as well, and there's no question that
Speaker 4: the Trump administration and then the lead up even to
Speaker 4: the last election, the rhetoric was a drill, baby, drill.
Speaker 4: The industry was very closely aligned with the Republican narratives,
Speaker 4: and particularly with the narratives of reducing regulations and getting
Speaker 4: rid of ESG and all that kind of stuff, But
Speaker 4: there wasn't a lot of narrative about necessarily what they're
Speaker 4: going to do with the price right on prices set globally,
Speaker 4: and that's a whole other dynamic that comes into play.
Speaker 2: What's happening. So you're based in Calgary and obviously one
Speaker 2: of Tracy mentioned that Dallas fed Energy survey, and part
Speaker 2: of the concern for the US based players is that
Speaker 2: their cost of goods very you know what is it
Speaker 2: the stibil tuber tubular component. Sorry, I don't know why,
Speaker 2: I can't remember. Prices are going up, et cetera. Can
Speaker 2: you talk a little bit about input costs and what's
Speaker 2: happening there on sort of both sides of the US
Speaker 2: Canada border.
Speaker 4: Yes, this is a big issues, the trade wars, the tariffs,
Speaker 4: and you know, you can get it into the details
Speaker 4: and call it tubular goods and valves and so on,
Speaker 4: but ultimately we're talking about steel. Yeah, and we're talking
Speaker 4: about the raw inputs that are fundamental to building facilities,
Speaker 4: to drilling, to product tubing and so on and so forth.
Speaker 4: So when the Trump administration started the trade wars effectively
Speaker 4: and the tariffs slopping tariffs on steel, well, yeah, the
Speaker 4: input costs are ultimately going to go up until such
Speaker 4: time as their desires in other words, the Trump administration's
Speaker 4: desire to domesticate or repatriate the steel industry to the
Speaker 4: point where it's competitive with the cheaper steals from the
Speaker 4: rest of the world. So there's no question that you're
Speaker 4: going to see inflation in the oil field, and there's
Speaker 4: often a lag. I mean, the story is only a
Speaker 4: couple months old, right, three months old, Like you will
Speaker 4: see the permeation of higher steel and steal product prices
Speaker 4: into places like the oil field over the course of
Speaker 4: the year. So yeah, stay tuned for the costs. You know,
Speaker 4: we've talked earlier about the sixty two dollars and whether
Speaker 4: or not that's economic. Well, it becomes less economic when
Speaker 4: the core inputs to the oil field start going up.
Speaker 3: Where are we in the sort of oil technology upgrade cycle,
Speaker 3: because I remember a few years ago, I guess again
Speaker 3: coinciding with the shale boom, there was this big drive
Speaker 3: for standardized components and that was starting to bring down
Speaker 3: some of the costs for producers. Yeah, are people still
Speaker 3: doing that? Like, do we still have big upgrades taking place?
Speaker 4: Well? There are. Again, it depends upon the extraction methodology.
Speaker 4: So there's two sides to this. One is the grilling
Speaker 4: the exploration completion side of the business. So I think
Speaker 4: there's still more surprises coming there. It's just amazing in
Speaker 4: terms of the types of wells that are being grilled
Speaker 4: a couple miles down, several miles across and then horseshoeing
Speaker 4: back to be able to recover more and more oil
Speaker 4: and natural gas by the way, and which means that
Speaker 4: the capital cost per foot that you drill, the capital
Speaker 4: cost per barrel that you liberate, goes down by virtue
Speaker 4: of technology, only to be offset by we just talked
Speaker 4: about the capital input cost of then developing the facilities
Speaker 4: to be able to extract, process and distribute the oil
Speaker 4: out of the ground. You know, getting back to your question,
Speaker 4: there's the subsurface technologies which continue to surprise. I think
Speaker 4: there's more to come in that. And above ground, what's
Speaker 4: happening is the drive for greater efficiencies, to turn the
Speaker 4: oil field more into a manufacturing operation and to drive
Speaker 4: cost down through scale. Hence you've seen the consolidation of
Speaker 4: the industry happening. Scale doesn't matter, and so you know
Speaker 4: there's a lot going on from the perspective of process
Speaker 4: and efficiency drive to bring costs down, only to be
Speaker 4: offset by the as I said, the input costs going
Speaker 4: up and then the pressures of price going down, which
Speaker 4: is the number one dominant variable which then dictates whether
Speaker 4: or not there's a margin squeeze, a profit margin squeeze
Speaker 4: or not.
Speaker 2: Can you talk a little bit more about the discovery
Speaker 2: process and you know, what tech looks like in May
Speaker 2: twenty twenty five versus a twenty fifteen or two thousand
Speaker 2: and five, and like what specifically, like what specific tech
Speaker 2: is being employed so that these companies can gain greater
Speaker 2: visibility into what's happening underneath the Earth's surface.
Speaker 4: Yeah, well, that's a good bracketing. Two thousand and five,
Speaker 4: the industry was still dominated by vertical wells. You drill
Speaker 4: a well in the ground, and it's like throwing darts
Speaker 4: at a board, you know. The geophysics, in other words,
Speaker 4: the ability to map the subsurface and understand where the
Speaker 4: oil is or the gases, it was pretty good, but
Speaker 4: it was still sort of a hit and miss type
Speaker 4: of thing, and that was the way it was for
Speaker 4: over a century. The advent of more precise horizontal drilling,
Speaker 4: which was really nothing new in two thousand and five,
Speaker 4: but it really started to take root with better instrumentation,
Speaker 4: better mechanics, you know, mechanical instrumentation and so on, and
Speaker 4: the ability to position the drill bit was a major advance.
Speaker 4: And then by twenty and fifteen it was okay, you're
Speaker 4: driving this drill bit down into the ground, you're bending
Speaker 4: at ninety degrees and you're going out. And then from
Speaker 4: twenty fifteen to today, ten years it's like, okay, let's
Speaker 4: go down, and now the subsurface looks like a fork.
Speaker 4: It doesn't look like a single well, and the importance
Speaker 4: of this can't be understated because now you're exposing more
Speaker 4: surface area of a well, you know, instead of one
Speaker 4: vertical well with say, I don't know, twenty thirty feet
Speaker 4: of exposure in a vertical cylinder. All of a sudden,
Speaker 4: now you have miles of exposure of a well going
Speaker 4: out horizontally and then forking and then now even making
Speaker 4: U turns and horseshoeing back. I mean, it's just incredible
Speaker 4: what we can do. You can think of a drill bit,
Speaker 4: which is the solid steel pipe. It seemingly but it's
Speaker 4: more like now a piece of spaghetti going down and
Speaker 4: winding around to make sure that we optimize it. I
Speaker 4: would say one more thing that's super important is that
Speaker 4: the technology is now a game. That the extraction methodologies
Speaker 4: become much more technical, and the ability to focus on
Speaker 4: extracting the maximum amount out of a reservoir using these
Speaker 4: new geologic penetration technologies is just amazing. So there's more
Speaker 4: to come in my opinion, and I never want to
Speaker 4: underestimate the ability of the technology to get better.
Speaker 3: So on the pros and cons of the current environment
Speaker 3: for oil producer's point, I guess you have technological advances
Speaker 3: that are still happening. You also have from the Trump
Speaker 3: administration some regulatory changes, and I think there's something about
Speaker 3: co mingling. I think they call it so a regulatory
Speaker 3: change that would I guess allow oil producers to pull
Speaker 3: crude out of multiple reservoirs. But are the regulatory changes
Speaker 3: enough to offset some of the higher costs we've been discussing.
Speaker 4: Well, that's a good question and one to be seen.
Speaker 4: I mean, generally speaking, the number one regulatory issue is
Speaker 4: to be able to drill a well, complete it and
Speaker 4: bring the oil and gas to market as quickly as
Speaker 4: possible because of the time value of money. Time is money,
Speaker 4: and so the removal of barriers to be able to drill,
Speaker 4: produce and sell oil and gas is a big deal.
Speaker 4: And so you know, we're sort of seeing some of that.
Speaker 4: But you know's the big difference between what the Trump
Speaker 4: administration can do it a federal level versus what companies
Speaker 4: have to do at the state level. And it's the
Speaker 4: same in Canada. Here there's really federal regulations are overlaying
Speaker 4: on top of provincial regulations, so we call it the
Speaker 4: pancaking of regulations is also problematic and so to the
Speaker 4: extent that pancaking is reduced and regulatory drag in terms
Speaker 4: of the time it takes to do things is reduced.
Speaker 4: Oh and particularly it's not just the drilling and extraction process,
Speaker 4: it's then building of the pipelines to get the commodities
Speaker 4: to the market.
Speaker 2: What's the state of pipeline politics these days, because I
Speaker 2: know that seems to go in and out of favor,
Speaker 2: but maybe tell us about Canada, what is the state
Speaker 2: of the appetite to expand pipeline networks.
Speaker 4: Yeah, that's a great question. So it was definitively out
Speaker 4: of favor for Canada fifteen years, starting to come back
Speaker 4: into favor within the Canadian public. And we now now
Speaker 4: have a new prime minister, Prime Minister Mark Kearney, and
Speaker 4: he has indicated that, okay, we're ready to think about
Speaker 4: pipeline and export facility development and infrastructure development. It's I
Speaker 4: would argue, more biased to the natural gas side, and
Speaker 4: particularly LNG liquefied natural gas exports off our west coast.
Speaker 4: But what was considered almost unthinkable, say five years ago,
Speaker 4: is all of a sudden invoked and it's largely driven
Speaker 4: frankly by the trade wars to desire for sovereignity here
Speaker 4: in Canada over our oil and gas supplies, and the
Speaker 4: need to diversify our markets away from the United States
Speaker 4: because for seventy years or longer, the United States has
Speaker 4: been our number one, in fact, our only market or
Speaker 4: oil and gas.
Speaker 2: It's pretty striking tracy that Mark Kearney of all people.
Speaker 2: I mean, it sort of does tell you a lot
Speaker 2: about how the winds are changing. That Mark Kearney is
Speaker 2: also you know, sort of on board or much more
Speaker 2: comfortable with pipeline expansion.
Speaker 3: Yeah, it's it's a shift for sure. Peter. Since you
Speaker 3: mentioned LLNG just now, can you sort of give us
Speaker 3: the state of play there as well, because this is
Speaker 3: something that's also been coming up, I guess, like the
Speaker 3: differing fortunes of crude oil versus LNG in North America.
Speaker 4: Yeah, Well, to get the North American sense, you've got
Speaker 4: to get the global sense. So which commodity is growing
Speaker 4: faster and in demand, and it's natural gas. Natural gas
Speaker 4: continues to grow quite handsomely. Oil is starting to level out.
Speaker 4: I don't think it's peaked yet. I think we've got
Speaker 4: a few years before oiled consumption peaks. But natural gas
Speaker 4: continues to rise, and we also now see the expansion
Speaker 4: of liquefied natural gas, certainly from the United States. In Canada,
Speaker 4: our first big terminal opens up potentially in a couple months,
Speaker 4: and more to follow. Globally, LNG, whether it's Australia, the
Speaker 4: Middle East and other places is growing, and so it's
Speaker 4: becoming competitive, but the competition is also matched by growing demand.
Speaker 4: So LNG is definitely the hydrocarbon fuel of the future
Speaker 4: in terms of growth, and I think you're going to
Speaker 4: see more. And then you talked to earlier Tracy about regulation.
Speaker 4: I think that the Trump administration is definitely on board
Speaker 4: with reducing regulatory drag on building loquified natural gas terminals.
Speaker 4: And I think the drill baby, drill narrative is much
Speaker 4: more tuned to natural gas than it is to the
Speaker 4: oil side of the equation.
Speaker 2: Does the expansion of LNG export terminals raise prices domestically
Speaker 2: for domestic consumers of natural gas stay in the US.
Speaker 4: Yes, And the reason is because for the past several decades,
Speaker 4: natural gas has been bottled up in North America, and
Speaker 4: particularly the last I would say fifteen years with the
Speaker 4: shale revolution and the liberation of prolific amounts of natural
Speaker 4: gas here in North America. It's made our prices here.
Speaker 4: I mean it's what is it, three dollars an mmbtu,
Speaker 4: something of that order, three point fifty Maybe I don't
Speaker 4: know what it is today, maybe you can pull it up,
Speaker 4: but whatever it is, I mean, globally, the price is
Speaker 4: much higher. It can be eight nine dollars, depending upon
Speaker 4: the geopolitical state of the world. Yes there's liquefaction costs,
Speaker 4: Yes there's transportation costs, but there's no question that there
Speaker 4: was an imbalance in supplying demand in North America that
Speaker 4: has kept the price low. The producers have adapted to
Speaker 4: that and can make money off of it. But the
Speaker 4: whole desire to export globally is to liberate North American
Speaker 4: gas into the global market and raises the price. So
Speaker 4: you're going to see the prices rise, and the forward
Speaker 4: curves are indicating that already.
Speaker 3: So I have to confess I rewatched Armageddon last week.
Speaker 3: Such a good movie. I can see why people think
Speaker 3: it was like secretly sponsored by Exxon though. But just
Speaker 3: on this note, Peter, the first time we ever spoke
Speaker 3: to you on all thoughts, I think a big chunk
Speaker 3: of our conversation was about talent in the energy space
Speaker 3: and actually securing workers who want to get into the
Speaker 3: oil industry and how difficult that was in the current environment.
Speaker 3: So fast forward, let's see when was the last time
Speaker 3: we spoke to you.
Speaker 2: I think we've twenty twenty one.
Speaker 3: Twenty twenty two. Okay, so fast forward three years. What's
Speaker 3: the talent picture like right now?
Speaker 4: Yeah, So there's two components to the talent. One is
Speaker 4: the downtown office workers, these geologists, geophysicist engineers, and that
Speaker 4: talent pool. So that talent pool was definitely and there
Speaker 4: was concern because of the retirement profile, the aging of
Speaker 4: the expertise and the last decade where again we were
Speaker 4: talking earlier about oil and gas being perceived as a
Speaker 4: sunset industry, so why would any young person ever want
Speaker 4: to go into this business? And so it was creating
Speaker 4: a situation whereby there could be like a real talent shortage,
Speaker 4: and you know, talent is still hard to come by. However,
Speaker 4: one of the things that's happened again technology has never
Speaker 4: sees surprise, is that the combination of new digital processing
Speaker 4: technologies AI and so on, means that whereas it used
Speaker 4: to take three geologists to do a job function now
Speaker 4: you can do it with two or potentially even one.
Speaker 4: So actually, what we've seen in the drive for efficiency
Speaker 4: that we discussed earlier as well, it's not just confined
Speaker 4: to the field, it's also in the office, so seeing
Speaker 4: actually reductions in workforce. But we'll see what that does
Speaker 4: to productivity. But generally speaking, there is this uncomfortable balance
Speaker 4: in my opinion, between the supply and demand of labor
Speaker 4: in the field blue collar workers. The issue is is
Speaker 4: that if there's better jobs that are not away from
Speaker 4: home so to speak, because there's you know, working on
Speaker 4: a drilling rig going in and out as hard, particularly
Speaker 4: if you have a family that has not been as
Speaker 4: much of a problem, and there's sort of a stabilization.
Speaker 4: For example, if you look at the US oil rig
Speaker 4: count over the course of the last while, I mean,
Speaker 4: it hasn't really grown that much. In fact, it's say,
Speaker 4: if you'll go back to since the last time we talked,
Speaker 4: the number of rigs that are active have fallen from
Speaker 4: six seven hundred down to five hundred, less than five hundred.
Speaker 4: I think it's the precarious balance at the moment. The
Speaker 4: saving grace is It's still of a very high paying
Speaker 4: industry relative to other industries, so that does tend to
Speaker 4: attract people.
Speaker 3: The one other thing I was wondering while watching Armageddon
Speaker 3: and all these drillers on an asteroid saving the world.
Speaker 3: Is there a competition from geothermal nowadays for workers.
Speaker 4: Kennidley, I haven't followed the rig count in geothermal. I
Speaker 4: don't think it's that big personally compared to the oil
Speaker 4: and gas industry. Could there be competition going forward, potentially, yes,
Speaker 4: but I don't see it as being that big, but
Speaker 4: I could I could be wrong. Yeah.
Speaker 2: Also, speaking of careers, someone DMed me this yesterday on
Speaker 2: Twitter and I confirmed it, which is that if you
Speaker 2: go to the careers page for Chevron, there is a
Speaker 2: literally two openings that are being advertised in the United States.
Speaker 2: I think this is like office jobs, and then there
Speaker 2: is a lot of openings in for software developers and
Speaker 2: other things like that in both India and the Philippines,
Speaker 2: also Sri Lanka, also Buenos Aires. How much of these
Speaker 2: sort of like the office jobs in the industry, thanks
Speaker 2: to technology of various flavors, is capable of just simply
Speaker 2: being moved offshore.
Speaker 4: I think quite a bit. I mean, it's like the
Speaker 4: digital revolution, which seems like an old, antiquated term continuous
Speaker 4: and now it's ahi and I think we're going to
Speaker 4: see more displacement of white collar workers in the office
Speaker 4: as a consequence of this. I mean very much the
Speaker 4: art of exploration and mapping the subsurface and engineering you
Speaker 4: can now do with fewer people and more technology.
Speaker 3: So I'm very conscious that we're having this big discussion
Speaker 3: about oil and I think we've only mentioned Opek a
Speaker 3: couple times and we're recording this on May thirteenth. President
Speaker 3: Donald Trump is currently in the Middle East. I think
Speaker 3: he's in Saudi Arabia right now as we speak. What's
Speaker 3: the state of Opek at the moment. I'm aware there
Speaker 3: seems to be this market share war and there's been
Speaker 3: discussions about boosting production yet again, but what's the overall
Speaker 3: picture and what is it that Trump might want to
Speaker 3: get out of Saudi at least when it comes to
Speaker 3: the oil.
Speaker 4: Yeah, Well, it's the Opek situation is really complicated on
Speaker 4: its own, let alone with what the President may or
Speaker 4: may not stay behind closed doors and want. So backing
Speaker 4: up to the question, what is the state of Opek?
Speaker 4: The state of OPEK is that the cartel sets quotas
Speaker 4: for production. So I mean in any country. In most
Speaker 4: countries this would be illegal, certainly in western countries. But
Speaker 4: there's a global cartel which has been around since the seventies,
Speaker 4: and that is the open At Cartel, which has expanded
Speaker 4: into Opek plus to include the Russians and a handful
Speaker 4: of other countries over the last couple of years. Overproduction
Speaker 4: amongst some of the members has always been a running theme. Recently,
Speaker 4: Kazakhstan has been overproducing right, and that has made the
Speaker 4: Saudis not very happy. The Saudis are the largest producer
Speaker 4: in OPEK and really the leading country within the cartel,
Speaker 4: so to teach them a lesson, basically they said, okay,
Speaker 4: we're going to ramp up production and try and drive
Speaker 4: the price down so that it brings into line all
Speaker 4: the various members of OPEK. This is not a new story.
Speaker 4: This happens periodically and so that's the state of play
Speaker 4: within OPEK. And so that comes at a time when
Speaker 4: global demand is weak as a consequence of the trade
Speaker 4: war and the uncertainties therein. And so the combination of
Speaker 4: tenuous demand combined with opening up the valves a bit
Speaker 4: to teach some of the members of OPAKA. Lesson has
Speaker 4: led to the fall in the oil price from seventy
Speaker 4: bucks down to sixty or sixty two today. What President
Speaker 4: Trump will say behind closed doors, I mean, as you said,
Speaker 4: he his objective has a lot of tension, as you
Speaker 4: pointed out at the beginning of the show, because on
Speaker 4: one hand, he wants to keep gasoline prices low at
Speaker 4: the pump, say around the low three dollars level per gallon.
Speaker 4: At the same time, if you keep the price of
Speaker 4: oil too low, the whole drill, baby drill narrative falls apart.
Speaker 2: So therein lies the tension, right And I don't know
Speaker 2: how sure you're supposed to even take it anymore.
Speaker 4: I don't even know if people talk about it.
Speaker 2: But there was like part of Scott Besson's you know
Speaker 2: three three three plan is the plan you know, expand
Speaker 2: oil production by another three million barrels per day in
Speaker 2: the US. That was one of the threes. And right
Speaker 2: now I think it's pretty clear we're going the exact
Speaker 2: opposite direction. Just going back to the trade war for
Speaker 2: a second, from the just the North American perspective, what
Speaker 2: are the impacts. You mentioned Canada wanting to diversify its
Speaker 2: export partners and so building out more export capacity. But
Speaker 2: when it comes to energy, what are sort of the
Speaker 2: first order impacts of the tariffs in terms of the
Speaker 2: flow of energy across the border.
Speaker 4: Yeah, that's a great question because it's multi dimensional. Okay,
Speaker 4: So the US produces about twelve million barrels per day
Speaker 4: of oils skewed toward the light barrels. Light light oils
Speaker 4: like West Texas Intermedia. Canada exports to the United States
Speaker 4: four million barrels per day for a total of sixteen
Speaker 4: and then you make up the other four by importing
Speaker 4: from various countries like Mexico and so on, so to
Speaker 4: bring it up to your twenty million barrels per day
Speaker 4: of consumption. So we are a very significant component of that.
Speaker 4: Most of our barrels that we sent to the United
Speaker 4: States are the heavy barrels which are refined in the
Speaker 4: Midwest and in the Gulf Coast, and those refineries there
Speaker 4: are very much tuned to refining, you know, in other words,
Speaker 4: the recipes for heavier oils, not lighter oils. So you know,
Speaker 4: initially when the tariff war broke out back post inauguration,
Speaker 4: it was like, we're going to put ten percent tariff
Speaker 4: on Canadian oils coming in. Well, that would have definitely
Speaker 4: increased costs to the refiners, which would be passed on
Speaker 4: to the consumers at the gas pump. In part. Now
Speaker 4: some of it would have had to be borne by
Speaker 4: the producer as well. It's all very complicated, but the
Speaker 4: bottom line is it's inflationary because effectively, a tariff is
Speaker 4: a tax and somebody's got to pay, and ultimately, if
Speaker 4: it's passed on to the consumer, they're going to pay. Now,
Speaker 4: we don't have that ten percent right now because the
Speaker 4: trade wars have simmered somewhat of late, but that has
Speaker 4: not prevented Canada from thinking, okay, wait a minute, we
Speaker 4: can't be reliant on one customer. NBA one on one says,
Speaker 4: don't be reliant on one customer. It's concentration risk, so
Speaker 4: let's start looking for other Customers's that's where it's at with.
Speaker 2: The Trump administration coming in. One of the things that
Speaker 2: we've seen is all these companies in all kinds of
Speaker 2: different industries feel very comfortable dropping a lot of their
Speaker 2: sort of I guess you'd call more liberal commitments, whether
Speaker 2: we're talking about ESG or DEI, and we see banks
Speaker 2: and never withdrawing from all these groups, and at least
Speaker 2: the big oil companies you know, paid lip service or
Speaker 2: had various greening or climate initiatives or decarbonizing their own
Speaker 2: supply chains. In some sense, would you say, like broadly
Speaker 2: like were any of those but they ever serious about
Speaker 2: them and buy and large like does the industry sort
Speaker 2: of feel liberated at this point to not have to
Speaker 2: spend effort and time talking about these things.
Speaker 4: You know, it's a great question, and it doesn't have
Speaker 4: a simple answer because the oil and gas industries in
Speaker 4: both Canada and the United States, as I mentioned earlier on,
Speaker 4: are quite diverse. There's hundreds of companies. Yeah, and there's
Speaker 4: various attitudes towards things like climate change, decarbonization, ESG across
Speaker 4: the board. So much as certainly we can point to
Speaker 4: certain CEOs, whether it's in larger small companies that are
Speaker 4: delighted by dropping all these things and thought they were
Speaker 4: nonsense to begin with, there are certainly other CEOs that
Speaker 4: take it seriously and have made conscious efforts to decarbonize things.
Speaker 4: So there's no you know, I hate to fall into
Speaker 4: sort of these binary answers to questions like that where
Speaker 4: I say, yeah, the whole oil industry is relieved, because
Speaker 4: that's not the case. I think that there's definitely a
Speaker 4: full spectrum of attitudes, and I think that's true in
Speaker 4: any industry, but particularly this one. By and large, there's
Speaker 4: a certain set of policies regulations that the industry will
Speaker 4: be relieved to get rid of, because if nothing else,
Speaker 4: the reporting burdens became so onerous that you need an
Speaker 4: entire department to report on these things, and that's costly.
Speaker 4: So there's no quick and clear answer. But generally speaking, up,
Speaker 4: I personally think the industry was overregulated from many dimensions,
Speaker 4: but that's not to say that I don't feel that
Speaker 4: some regulations are necessary.
Speaker 3: Joe, I'm going to ask a peak oil question.
Speaker 4: Okay, good, I'm going to do it.
Speaker 3: No, Okay, it's not really peak oil, although it does
Speaker 3: have the word peak in it. But I was looking
Speaker 3: through some comments from oil companies recently, and I saw
Speaker 3: the CEO of Diamondback Energy say that as a result
Speaker 3: of the activity cuts in the oil industry, it is
Speaker 3: likely that US onshore oil production has peaked and will
Speaker 3: begin to decline this quarter, and there's actually a decent
Speaker 3: amount of discussion about US production actually peaking and now
Speaker 3: coming down. Is that roughly correct? Peter, would you say
Speaker 3: that US onshore oil production at.
Speaker 4: Least has peaked, Well, I would answer that by first
Speaker 4: of all saying there's no shortage of oil in the
Speaker 4: United States underground, like that there's massive amounts of oil.
Speaker 4: Has oil production, in other words, extracting oil peaked at
Speaker 4: twelve million barrels per day? My answer is at sixty
Speaker 4: five dollars or so, yes, at current levels of capital
Speaker 4: inflow from investors, yes, Does that mean that it can't grow?
Speaker 4: The answer is now, we talked earlier about technological improvements.
Speaker 4: It depends upon the geopolitics of the world. It depends
Speaker 4: upon the price of oil. Therefore, the price goes back
Speaker 4: up to seventy five dollars, and that investors see that
Speaker 4: there's money to be made in the business, you'll start
Speaker 4: to see more growth and potentially competitive the ability to
Speaker 4: compete even more with other other producers and jurisdictions around
Speaker 4: the world. So there's no short answer again to this
Speaker 4: kind of question, say, has oil peaked? Oil production peaked
Speaker 4: in the United states taken the answers, Yes, at sixty
Speaker 4: five dollars, and under the current conditions, it's peaked in
Speaker 4: my opinion.
Speaker 2: Peter tired second, thank you so much for coming back
Speaker 2: on odd lots, and we'll catch up with you in
Speaker 2: a few years under what will probably be a totally different,
Speaker 2: unforseeable set of conditions. Well, thank you so much. I'd
Speaker 2: love to come back, Tracy. I want to look at
Speaker 2: some of all this technology, like the idea of what
Speaker 2: we think of as a sort of simple steal pype
Speaker 2: actually being more like spaghetti that can you turn underground.
Speaker 2: I want to I want to learn more about how
Speaker 2: that works.
Speaker 3: Yeah, that's amazing.
Speaker 2: I know it's incredible.
Speaker 3: It would have been useful when when they were trying
Speaker 3: to destroy the asteroid. Yes say that, Okay, Well, I
Speaker 3: thought one of the one of the important things out
Speaker 3: of that conversation, and I still think it's underappreciated in
Speaker 3: sort of oil market history, is just how much the
Speaker 3: shale boom was really a capital market story as well
Speaker 3: as a technology story and a cost cutting story and people,
Speaker 3: you know, standardizing little individual valves and reducing costs that way.
Speaker 3: But I think that's sort of the key at the moment,
Speaker 3: like how do you entice capital back into an industry
Speaker 3: which has been burned multiple times and which, as Peter said,
Speaker 3: at the current level of oil prices, just doesn't necessarily work.
Speaker 2: And I guess the other question maybe that could bring
Speaker 2: more capital to the n space is if more of
Speaker 2: these LNG export terminals in both the US and Canada
Speaker 2: were to open up and that gap and people have
Speaker 2: been like, there's never been a global price of LNG
Speaker 2: because of the infrastructure hasn't been there, and there's been
Speaker 2: this glut in a way that's been very good for
Speaker 2: US electricity consumers, this glut of LNG that hasn't been
Speaker 2: able to make it outside of the borders. But with
Speaker 2: pipeline politics changing, and it really is striking that someone
Speaker 2: like Mark Karney is warming to pipeline expansion for various reasons.
Speaker 2: With pipeline politics changing, with export terminal likely to be
Speaker 2: more built, you could imagine at least on the LNG side,
Speaker 2: a lot of money looking to exploit that persistent, that
Speaker 2: persistent global price ARBs, so to speak.
Speaker 3: Well, this is a big theme, right and I think
Speaker 3: I said it on the podcaster. It was in my
Speaker 3: question but the differing fortunes between crude versus LNG right
Speaker 3: now just feels so so striking.
Speaker 2: Totally, like maybe we're getting somewhere close to peak oil demand.
Speaker 2: But as Peter said, LLNG is clearly or it looks
Speaker 2: like it is going to be the hydrocarbon of the future.
Speaker 2: So when we think drilling, et cetera, we still mostly
Speaker 2: think oil, but maybe we have to reshift our mindset
Speaker 2: towards natural gas.
Speaker 3: If LNG is going to be the hydrocarbon of the future.
Speaker 3: I feel like we really need a benchmark to look at.
Speaker 4: Right.
Speaker 2: Well, we're gonna yeah, we need a global price, right
Speaker 2: but that you know, by the time there's a global price,
Speaker 2: then the art will be closed.
Speaker 3: If anyone's working on a global LNG price, get in touch,
Speaker 3: I'd be interested. Yeah, all right, shall we leave it there.
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the All Thoughts podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy.
Speaker 2: Alloway and I'm Jill Wisenthal. You can follow me at
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